Several weeks after the government was buffeted by the Finmeccanica scandal early this year, defence minister AK Antony promised a CEO of a local defence firm "winds of change".

This chief executive, who requested anonymity, was "gladly surprised" when the 73-year-old politician — known to be more sympathetic towards public sector undertakings than even champions of the Swadeshi movement — vowed to boost the domestic private sector's role in defence production. "He kept saying, 'winds of change are coming'," recounts this top executive who is part of a trade body.

While ET Magazine couldn't independently verify this story, reducing huge dependence on defence imports has been on the defence ministry's agenda for a while. The talk of indigenisation, too, is nothing new. Besides, Antony has made it clear that he is not averse to enlisting more local private sector support in defence production. He expects the move to bring down graft.

Antony is known to follow zero-tolerance towards corruption; he has blacklisted six companies since he took over in 2006: Singapore Technologies, Israeli Military Industries, Germany's Rheinmetall Air Defence, Corporation Defence of Russia, Delhi-based T S Kisan and R K Machine Tools of Ludhiana. However, he hasn't yet blacklisted Italian conglomerate Finmeccanica whose chief is in jail over charges of hiring middlemen to get Indian officials to swing a multi-crore chopper deal in India.

The latest amendments to the defence procurement policy (DPP), recently cleared by the defence advisory council (DAC), is another step in the direction of weeding out corruption. The changes are "quite different", claims a defence ministry official, adding that "they will give a lot of opportunities to Indian private players".

The official was initially sceptical of the move. He had his reasons, he concedes. After all, India is the world's largest arms importer thanks to high demand from its armed forces to replace obsolete equipment and poor manufacturing capabilities of its state-owned and private defence firms.

"But I think this is a beginning. This is a long-haul game. The current defence minister may go down in history as the one who took that big step in helping India's defence go global. But in the short term he is going to draw criticism," vouches another official known to be close to Antony. He also didn't wish to be named. Good for India?

Vivek Lall, CEO of Reliance's homeland security and aerospace divisions, is a NASA veteran who was formerly president of Boeing India. In a recent speech he said that getting rid of "the process of nomination" in DPP for choosing companies that maintain, repair and overhaul (MRO) aircraft opens up a lot of opportunities for private players.

Thanks to outdated technologies, ordinance factories and defence PSUs had to do work frequently on aircraft and other defence vehicles, incurring high costs. "This measure [doing away with nomination of defence PSUs alone] is expected to have a positive impact on private-public sector cooperation in MRO work," hopes Lall.

Of course, better technology can slash the frequency of such work and help cut costs. Defence strategist and author Brahma Chellaney is in full agreement with the latest DPP amendments, at least in theory. "These are important technical and legal steps to spur indigenisation," he declares, emphasising the need to arrest the "heavy dependence on imports for meeting even basic defence needs". India's defence imports rose from $1.26 billion in 2007 to $3.4 billion in 2011.

Who Should be Happy?

According to the amended policy, "buy Indian" comes on top in the hierarchy of preferences for purchases. The next is "buy and make Indian" (through joint ventures with foreign vendors); then comes "make Indian" (where local firms design, develop and build systems). "Buy and make" (with transfer of technology) comes next. The last on the list is "buy global" (getting overseas equipment).

Rahul Gangal, defence analyst and principal at Roland Berger Strategy Consultants, a Munich-based consultant with operations in India, says local firms in certain sectors will gain from this policy (which does not apply to ongoing procurement projects). The sectors, according to him, include strategic electronics; radar and radar sub systems; C4I networks; air defence launchers; and small umanned aerial vehicles, among others.